When I was still active we ran all our drills in three phases. Dry fire, blank fire, live fire. This ensured that by the time live rounds were flying about we had covered all areas of safety concern. We also had certain training areas designated as blanks and simulation rounds firing only. These were close quarters combat training areas where live ammo would detract from the training. Lastly blanks are used in all force on force training, wouldn't want to use live ammo when your buddies are charging the hill you are defending.
As far as how loud blanks are, I'm not sure. But I could have sworn that indoors our blanks were louder than bullets. Especially the machine guns.